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Honda's Signals Mixed

The review by J.D. Power and Associates notwithstanding, Honda has some quality problems.

Want to hear a story that makes no sense? Yesterday, I penned a piece that noted, in passing, that Honda(NYSE:HMC) had nearly tied ToyotaMotor(NYSE:TM) for first place in J.D. Power's annual survey of long-term vehicle reliability.

Soon after, one kind Fool sent me a piece from Bloomberg that described how Honda had just widened a recall of its vehicles sold in North America after discovering a risk that the vehicles' transmission shafts could overheat. In all, Honda is recalling more than 1.1 million Accords, Acuras, Odyssey minivans, and Pilot and Acura SUVs. That's nearly 90% of the company's total annual U.S. sales for all of 2003 (1.35 million)! So relatively speaking, the magnitude of Honda's recall is about three times as significant as the numerically larger GM recalls that we wrote about here earlier this year.

As a result of the recall, which should begin within the next two weeks, Honda expects to take a hit of more than $200 million to inspect and repair the recalled vehicles.

But the money may be the least costly part of the whole operation. Honda's reputation for reliability will almost certainly suffer when the recall is announced. The timing and the subject of the recall are also problematic, for a couple of reasons.

First, the recall will be hitting two of Honda's biggest weapons in America's car wars: its best-seller, the Accord; and its Odyssey minivan, which as recently as three years ago was the most coveted minivan on the market, enjoying waiting lists of buyers and affording pricing power to dealers -- much as the Prius is doing for Toyota right now.

Speaking of the Prius, it is also worth noting that newfangled hybrid gas-electric cars, Honda's Insight and Civic for instance, are just now beginning to pick up a bit of market momentum and consumer acceptance. Ford(NYSE:F) and General Motors(NYSE:GM) are both set to join the battle with truck-platform hybrids shortly.

To this Fool's thinking, the outset of an epic competition for the mindshare of America's green auto buyers is just about the worst time Honda could have picked to allow questions about its engineering quality to emerge.

Author

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.